Debt Security - A written promise to pay a stipulated sum of money to a specified party under conditions mutually agreed upon and secured by Collateral. Bonds, notes, and any other forms of securitised Debt issuance, are referred to as Debt Security.

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Rule 144A of the US Securities Act enables
Debt Securities to be sold without registration with the US Securities and Exchange Commission. This is subject to the condition that offers may not be made to persons other than qualified institutional buyers.
Rule 144A was implemented in order to induce foreign companies to sell securities in the US capital markets, and is one of the key offer types that Australian SecuritisationIssuers use to issue into the US market.
Rule 144A issues are denominated in US dollars.

AAPR

Average Annualised Percentage Rate - also known as the ‘true rate’ or Loan comparison rate. The AAPR is the average Interest rate payable over a seven-year period for a given Loan amount including all upfront fees, ongoing fees, Interest rate (and a revert to rate for the case of fixed Term, introductory and honeymoon Loans) and the Interest payable on that Loan amount over that period. Not included in the AAPR are government fees, exit/disCharge fees, service fees (e.g. redraw, internet usage fees) and any other fees that are not always applied.

AASB

Australian Accounting Standards Board - an Australian Government agency under the Australian Securities and Investments Commission Act 2001. The functions of the AASB are: to make accounting standards and participate in the development of a single set of accounting standards for worldwide use.

The restructuring of an existing Mortgage Receivable by increasing the monthly payments in order to pay off the Receivable in a shorter time than the original maturity.

Acceleration Clause

A clause commonly included in Receivables contracts that gives the holder the right to demand the entire outstanding balance be paid in the Event of Default.

Accrued Interest

Coupon earned by an investor on a Debt Security but not yet paid to the investor usually because the next Payment Date has not yet occurred. This can also apply to Interest earned on a Receivable but not yet paid to the SPV because the next periodic Receivable date for payment has not yet occurred.

Actual/360

The method for calculating Interest payments using the actual number of days in a month and 360 days in a year.

Authorised Deposit-taking Institution - corporations which are authorised under the Banking Act 1959, and regulated by APRA. ADIs include banks, building societies and credit unions. All ADIs are subject to the same Prudential Standards.

Adjustable Rate Mortgage

ARM - a MortgageLoan subject to changes in Interest rates. When rates change, ARM monthly payments increase or decrease at intervals determined by the lender.

Advance Rate

The amount that is advanced to an Obligor or an Issuer, as a percentage of the value of a physical Asset or pool of Receivables respectively. For example, it can refer to the maximum amount that will be advanced to an Obligor as a percentage of the value of the property or other physical Assets underlying the Receivable.

Adverse Selection

Generally refers to the risk that Receivables sold to the SPV are of a credit quality which is lower than the credit quality of the universe of Receivables originated by the Originator. It also refers to the process by which the risk profile of a Receivables pool is assumed to worsen over time because of the presumption that those Obligors who are more creditworthy are the ones who are more likely to prepay their Receivables, leaving the pool with more concentrated Credit Risk over time.

Affiliate

A person or entity who, directly or indirectly, either controls, is controlled by, or is under common control with, a specified person or entity.

Australian Office of Financial Management - Australian Government agency responsible for management of Australian Government Debt, cash balances and investments in financial Assets. The AOFM invests in RMBS under a Government program to maintain competition in lending for housing in Australia.

Application Fee

The fee Charged by a lender to cover or partially cover the lender’s costs of setting up or establishing the Receivable. The fee does not guarantee that the Receivable will be approved.

Appraised Value

An estimate of the value of the property offered as Security for a MortgageLoan. This appraisal is done for Mortgage lending purposes and may not reflect the market value of the property.

Australian Prudential Regulation Authority – the regulator that oversees ADIs, insurance companies, and most members of the superannuation industry. APRA is responsible for the creation, maintenance and adherence to Prudential Standards.

APS

APRA Prudential Standards – these standards form part of the framework under which APRA supervises and regulates ADIs. One of the key standards that impacts Securitisation by ADIs is APS 120 (Securitisation).

Arbitrage

The purchase and sale of
Debt Securities simultaneously in order to take advantage of price differentials that generally creates a risk-free profit.

Arranger

The party that usually structures and arranges the transaction offering on behalf of the Sponsor, and manages the allocations of
Debt Securities to investors. Also referred to as Lead Manager.

An overdue amount that has not yet been paid, on a Receivable that is still performing, i.e. has not yet been written-off. Refer also to Days in Arrears.

ASF

Australian Securitisation Forum – an industry body which represents participants in the Securitisation market to promote the development of Securitisation in Australia. The ASF represents the industry to government, regulators, the public, investors and others.

Australian Securities and Investments Commission. ASIC is Australia’s corporate, markets and financial services regulator. ASIC is an independent Commonwealth Government body set up under the Australian Securities and Investments Commission Act (ASIC Act). ASIC carry out most of their work under the Corporations Act.

AAPR - also known as the ‘true rate’ or Mortgage Loan comparison rate.. The AAPR is the average Interest rate payable over a seven-year period for a given Loan amount including all upfront fees, ongoing fees, Interest rate (and a revert to rate for the case of fixed Term, introductory and honeymoon Loans) and the Interest payable on that Loan amount over that period. Not included in the AAPR are government fees, exit/disCharge fees, service fees (e.g. redraw, internet usage fees) and any other fees that are not always applied.

Backup Servicer

The entity that will administer and service the Receivables portfolio in the event that the ServicerDefaults, resigns or is removed. Back-up servicing arrangements can be 'cold' (the Servicer and Backup Servicer do not regularly share data or system information), 'warm' (Servicer and Backup Servicer systems are generally aligned and data may be shared regularly) or 'hot' (Servicer and Backup Servicer systems are generally run in parallel).

Balloon Loan

A Loan that requires the remaining Principal balance to be paid at a specific point in time. For example, a Loan may be amortised as if it would be paid over a 30- year period, but requires that at the end of the tenth year the entire remaining balance must be paid.

Banker’s Lien

The right of a bank to retain a customer’s Securities until a Liability to the bank is discharged.

The legal financial state an individual is in when unable to meet Debts (for companies it’s known as being ‘wound up’). An Obligor may be declared bankrupt by the Federal Court at either the Obligor’s’s or the creditor’s instigation, and the Obligor’s estate will be placed in the hands of an official receiver who will distribute the estate in accordance to the provisions of the Bankruptcy Act.

A contract whereby a party swaps Floating–rate Interest payments referenced using a specific index, for Floating-rateInterest payments referencing a different index, at a predetermined date and rate, in order to mitigate Basis Risk within a transaction.

An assignment or transfer of rights in the Interests in the Receivables, rather than full legal ownership. The beneficial owner benefits from owning an Asset, even if the Asset’s Title of ownership is in the name of another party.
Beneficial assignment is accompanied by authority to perfect or protect that beneficial Interest in certain situations (Title Perfection events). Also referred to as Equitable Ownership / Equitable Assignment / Equitable Title.

A written promise to pay a stipulated sum of money to a specified party under conditions mutually agreed upon. Also called a Promissory Note, ‘promise’ or ‘bond’. Throughout this glossary, bonds, and any other forms of securitised Debt issuance, are referred to as
Debt Securities.

A person who has been approved to receive a Loan and is then obligated to repay it and any additional fees according to the Loan terms (also called a Mortgagor or Obligor). For consistency, the term Obligor is used throughout this glossary, although the term Borrower is more commonly used in reference to a MortgageLoan.

Also known as ‘working day’. It comprises Monday to Friday, but not public holidays.

Calculation Agent

A party responsible for calculating the amount owed by the parties to a Swap arrangement.

Call Date

The date on which the
Debt Securities can be redeemed (effectively bought back by the Issuer/Trustee) prior to the Legal Maturity Date. The Issuer has the right to redeem the
Debt Securities, but does not have an obligation to redeem. In many cases, if the Call Option is not exercised on the Call Date, the Margin steps-up to a higher level, as an incentive to the Issuer to exercise the Call Option.Receivable pool has been paid down to a small proportion of the original balance, say 5% or 10%. Refer also to Redemption.

Call Option

Exists when the
Debt Securities can be redeemed (effectively bought back by the Issuer/Trustee) prior to the Legal Maturity Date. The Issuer has the right to redeem the
Debt Securities, but does not have an obligation to redeem. In many cases, if the Call Option is not exercised on the Call Date, the Margin steps-up to a higher level, as an incentive to the Issuer to exercise the Call Option.
The term ‘Clean-up Call’ is used for a Call Option which exists at a point when the underlying Receivable pool has been paid down to a small proportion of the original balance, say 5% or 10%. Refer also to Redemption.

Call Protection

A feature that provides assurance to an investor that early or unscheduled redemption of a particular Debt Security will not occur due to a decline in Interest rates.

Capital Improvement

A structure or major piece of equipment built or installed to permanently add value and capacity to property.

Capital Relief

Historically, Securitisation has been one avenue ADIs have taken to obtain capital relief. Capital relief refers to the ability to effectively reduce the (inefficient and costly) capital required to be held by regulated entities against their Assets under Basel and APRA regulations.

Credit Default Swap – A synthetic structure whereby the buyer of the CDS makes a series of payments to the Seller and, in exchange, the Seller of the CDS will compensate the buyer in the event of a LoanDefault (for a Loan that is referenced in the CDS). Compensation for LoanDefault is usually the Face Value of the Loan.

A document identifying the ownership of land. It shows who owns the land and whether there are any Mortgages or other restrictions on it. This document (if issued) is usually held by the lender as Security for a MortgageLoan.

A Debt that is unlikely to be repaid and is written off. This term can apply to either the underlying Receivable, or the Debt Security issued, but is more commonly used in reference to a Debt Security.

One of a series of
Debt Securities secured by a single pool of Receivables. The classes have different terms and conditions and rank in different orders in the payment Waterfall, leading to each class having varying levels of Credit Risk. Different classes can be denominated in different currencies and have differing maturity dates. Also referred to as a Tranche.

Clear Title

A Seller has a clear Title when there are no restrictions (e.g. an outstanding Mortgage) preventing the sale, and when ownership of the Seller has been established. Also referred to as unencumbered Title.

CDO - a Debt Security backed by a pool of Bonds, Loans and other Receivables. CDOs do not specialize in one type of Debt but are often non-mortgage Loans or Bonds. The CDO can be cash flow or synthetic (i.e. the credit value is derived from a Debt that the SPV does not actually own).

When an Obligor falls behind, the lender contacts them in an effort to make the Receivable current again (i.e. all Arrears paid). The Receivable goes to ‘collection’. As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreclose on the property or seize other physical Assets.

The risk that cash belonging to an issuing SPV is mixed with cash belonging to a third party (e.g. the Originator or Servicer) or goes into an account in the name of a third party in such a way that, in the Insolvency/Bankruptcy of the third party, such cash cannot be separately identified or the cash is frozen in the accounts of the third party.

Concentration Risk

The risk that large exposures to individual Obligors, or to certain types of Obligors or products, or geographic concentrations, may increase the Credit Risk of a portfolio. Generally, additional Credit Enhancement will be required to mitigate concentration risk in portfolios.

Conduit

An entity which purchases Receivables from several different Sellers, and funds the purchases by issuing ABS or ABCP.

Consolidated Loans

Loans in the securitised pool which are Split-Loans that are secured by the same properties.

Construction Loan

A short-term Loan to finance construction costs. The lender makes payments to the builder at certain intervals during construction.

Contract of Sale

A written agreement outlining the terms and conditions for the purchase or sale of property.

Controlled Amortisation

A period that may follow the Revolving Period of a transaction, during which the outstanding balance of the related
Debt Securities is partially repaid. A controlled Amortisation period is usually 12 months in length.

Conveyance

The legal process for the transfer of ownership of Real Estate.

Cornerstone Investor

Initial large investor which may be a listed company, private equity fund or a high net worth investor.

COSL (Credit Ombudsman Service Limited).

COSL offer an impartial dispute resolution service for resolving complaints with a participating financial service provider. Formerly known as MIOS (Mortgage Industry Ombudsman Service).

Constant (or Conditional) Prepayment Rate – the standard measure of Prepayments in Australia. CPR is the amount of Principal prepaid in excess of scheduled repayments expressed as an annualised percentage.

CDS – A synthetic structure whereby the buyer of the CDS makes a series of payments to the Seller and, in exchange, the Seller of the CDS will compensate the buyer in the event of a LoanDefault (for a Loan that is referenced in the CDS). Compensation for LoanDefault is usually the Face Value of the Loan.

Refers to the features, facilities or rights within the transaction, intended to protect investors from losses with respect to securitised cash flows. Credit enhancement aims to mitigate Credit Risk within the transaction, credit enhancement can be in the form of External Credit Enhancement or Internal Credit Enhancement. It is also sometimes categorised as being either hard credit support (in place from the time the transaction closes) or soft credit support (may be partially in place at the time the transaction closes, but may build up over the life of the transaction).

Credit History

A record of an individual’s repayment of Debt. Credit histories are reviewed by Originators as one of the underwriting criteria in determining Credit Risk.

Risk of a Default by the Issuer or other party in its financial obligations to the investor or other Secured Creditor.

Credit Support

Also called Credit Enhancement, Credit Support refers to the features, facilities or rights within the transaction, intended to protect investors from losses with respect to securitised cash flows. Credit Enhancement aims to mitigate Credit Risk within the transaction, Credit Enhancement can be in the form of External Credit Enhancement or Internal Credit Enhancement. It is also sometimes categorised as being either hard credit support (in place from the time the transaction closes) or soft credit support (may be partially in place at the time the transaction closes, but may build up over the life of the transaction).

Currency Swap

A contract whereby a party swaps Principal and/or Interest payments in one currency for another currency at a predetermined date and rate, in order to mitigate currency risk within a transaction.

A unique, nine-digit identification number permanently assigned by the Committee on Uniform Securities Identification Procedures to each publicly traded Debt Security at the time of issuance. If the Debt Security is in physical form, the CUSIP number is printed on its face.

A written promise to pay a stipulated sum of money to a specified party under conditions mutually agreed upon and secured by Collateral. Throughout this glossary, Bonds, notes, and any other forms of securitised Debt issuance, are referred to as Debt Securities.

DEF

Deferred Establishment Fee –a fee which is now banned in Australia, which was previously charged if a Mortgage Loan paid out within a set period of time after the Loan settled (usually any time up to 4 years). In 2011 the NCCP regulations were amended to include a ban on DEFs and certain other exit fees relating to credit contracts secured over residential property. It should be noted that DEFs can still be charged on Loans secured over commercial property.

Failure to abide by the terms of a Receivable agreement, resulting in a failure to make Receivable payments when due. Defaulting on the Receivable may result in the Receivable provider taking legal action to repossess the underlying physical Asset (e.g. mortgaged property or vehicle).

Deferred Establishment Fee –a fee which is now banned in Australia, which was previously charged if a MortgageLoan paid out within a set period of time after the Loan settled (usually any time up to 4 years). In 2011 the NCCP regulations were amended to include a ban on DEFs and certain other exit fees relating to credit contracts secured over residential property. It should be noted that DEFs can still be charged on Loans secured over commercial property.

An assignment or transfer of rights in the interests in the Receivables, rather than full legal ownership. The equitable owner benefits from owning an Asset, even if the Asset’s Title of ownership is in the name of another party. Equitable assignment is accompanied by authority, to perfect or protect that equitable interest in certain situations (Title Perfection events). Also referred to as Beneficial Ownership / Beneficial Assignment / Beneficial Title.

Equity

A homeowner’s financial Interest in a property. Equity is the difference between the price for which a home could be sold and the amount still owed on its Mortgage. Equity usually increases as the outstanding Principal of the Mortgage is reduced through regular payments. Market values and improvements to the property also affect equity. Equity can also refer to the First Loss Piece in a Securitisation structure

Establishment Fees

Fees payable to a lender to cover the costs of setting up a Receivable.

EURIBOR

Euro Interbank Offered Rate - a daily reference rate based on the averaged Interest rates at which Eurozone banks offer to lend unsecured funds to other banks in the euro wholesale money market.

EOD - specified contractual event that when triggered will result in the lender/Secured Creditors calling for the outstanding amount of the Receivable/Debt Security from the Obligor/Issuer respectively. One of the key EODs in a Securitisation is a failure by the Issuer to make a payment to a Secured Creditor (e.g. a Coupon payment) as and when due (subject to a grace period of around 2 days).
Following an EOD, the Waterfall used to determine payments is the “post-event of default” Waterfall (as opposed to the “pre-event of default” Waterfall).

The date as of which Debt Securities are expected to be repaid in full, based on a specified assumption regarding the rate at which the underlying Receivables will be repaid or refinanced.

Expert

A person who is named in an Offer Document as having prepared or certified any part of the Offer Document, or as having prepared or certified any report or valuation for use in connection with that Offer Document.

Extension Risk

Risk that Prepayments will be slower than the assumed rate causing later-than-expected return of Principal.

Legal process by which an Obligor in Default under the terms of a Mortgage ceases to have an Interest in the Mortgaged property. This usually involves a forced sale of the property with the proceeds of the sale being used to reduce or clear the MortgageDebt.

IO Strip - a Debt Security whose entitlements relate specifically to excess InterestMargin in a transaction. The Debt Security does not have a Principal balance, and Interest payments are calculated on a notional balance which may be fixed, or change over time.

Interest Rate Swap

An agreement between two parties to switch payments of differing Interest rates for a certain period.

International Organization of Securities Commissions. IOSCO is an association of organisations that regulate the world’s Debt Securities and futures markets. Members are typically the Securities Commission or the main financial regulator from each country. The Australian member is ASIC. IOSCO aims to develop, implement and promote adherence to internationally recognised and consistent standards of regulation, oversight and enforcement in order to protect investors and promote investor confidence, maintain fair, efficient and transparent markets, and address systemic risks

The geographical area to which practical authority applies to deal with legal matters.

Lead Manager

The party that usually structures and arranges the transaction offering on behalf of the Sponsor, and manages the allocations of Debt Securities to investors. Also referred to as Arranger or bookrunner.

LMI - an insurance policy on an individual MortgageLoan, or pool of MortgageLoans, to protect the lender from any shortfall in the event of a Default by the underlying Obligor(s) and shortfall on realisation of the properties securing those Loans. LMI is required primarily for Obligors with a deposit of less than 20% of the property’s purchase price.

Lending Policy

An institution’s statement of its basic lending philosophy, including standards, guidelines and limitations that are to be observed and adhered to in the process of deciding whether to grant a Receivable contract. The policy must adhere to applicable law and regulations.

Letter of Credit

An agreement between a bank and another party under which the bank agrees to unconditionally and irrevocably make funds available to or upon the order of the other party upon receiving notification.

A pre-established Loan authorisation with a specified borrowing limit extended by an Originator. A Line of Credit allows Obligors to obtain a number of Loans without re-applying each time as long as the total of borrowed funds does not exceed the credit limit.

A contract whereby the liquidity facility provider lends cash to a SPV to compensate for any timing mismatches between the securitised Receivables and the associated Debt Securities. In ABCP, the cash is used to redeem maturing paper as required.

Lenders’ Mortgage Insurance. An insurance policy on an individual MortgageLoan, or pool of MortgageLoans, to protect the lender from any shortfall in the event of a Default by the underlying Obligor(s) and shortfall on realisation of the properties securing those Loans. LMI is required primarily for Obligors with a deposit of less than 20% of the property’s purchase price.

With respect to a sample of Receivables, the loss curve is a graphical representation of the pattern of losses experienced over time, based on plotting the Defaults or losses that occur over the life of all Receivables in the sample, usually depicting the cumulative loss rate over the Term of the Receivable pool.

Low-doc Loan

A Loan where the source and the affordability of the Mortgage applied for is accepted without full provision of supporting documentation and verification by the Originator.

LTV

Loan-to-value Ratio or LVR - a percentage calculated by dividing the amount borrowed by the value of the property used as Security for the Loan.

Entity that is responsible for the day-to-day operations of the Securitisation transaction, including determining the cash flows generated from the Receivables and the calculation of payments and fees due to the relevant counterparties and investors of the transaction. Also referred to as Trust Manager.

MVD – In relation to Credit Rating Agency stresses and assumptions, MVD refers to the percentage by which it is assumed property valuations will decline at particular stress levels, e.g. 45% MVD at AAA rating level

Mark to Market

The accounting process to adjust the value of an Asset to reflect the current market value rather than the accounting book value. Mark to market values are typically obtained for financial instruments quoted on an exchange or valued using an industry-accepted valuation model.

Master Trust Deed

The document provides for the creation of a number of Trusts and sets out the powers and responsibilities of the Trustee and the Manager.

Match Funding

Funding an Asset with a Liability that has the same repayment profile.

Material Adverse Effect

A clause or provision that is included in Securitisation transaction documents that enables one transaction party to remedies upon certain actions (or failures to act) by another transaction party.

Maturity Date

The date on which the Principal balance of a Receivable, Debt Security or other financial instrument becomes due and payable or the agreement is renewed. It is the date by which a specific Class of Debt Securities must be repaid in order not to be in Default. In relation to a Securitisation transaction, it is also the last possible date on which an Asset (Receivable or other Asset, such as cash account) within the pool can mature.

A Term used to describe investors that sit (in size and sophistication) between institutional/wholesale investors, and retail investors (mums and dads). Examples of Middle Market Investors include local councils, high net worth individuals, charities, universities and churches.

Market Value Decline – in relation to Credit Rating Agency stresses and assumptions, MVD refers to the percentage by which it is assumed property valuations will decline at particular stress levels, e.g. 45% MVD at AAA rating level

NCCP

National Consumer Credit Protection – Regulations under the National Consumer Credit Protection Act 2009 (Cth) and related legislation which is designed to protect the rights of the individual (personal consumer) by ensuring lenders all adhere to the same rules when providing personal, domestic or household credit.

A MortgageLoan which fails to meet traditional lending criteria, e.g. the Obligor has a poor credit history. Historically, the “traditional lending criteria” in Australia is that which was required by the Lenders Mortgage Insurers. The rate Charged on a Non-conforming Loan is higher than the prime or standard rate. Non-conforming Loans are also sometimes referred to as specialist Loans or Sub-prime Loans.

The person or Debtor liable to the Originator or Seller in respect of Receivables. Also referred to as a Borrower. For consistency, the term Obligor is used throughout this glossary, although the term Obligor is more commonly used in reference to a non-MortgageLoan, such as a trade receivable or an auto or equipment Loan. Pronounced ‘ob / lee / gor’.

Off-Balance Sheet

An accounting treatment whereby an Originator is enTitled to remove securitised Assets from its own balance sheet.

Refers to the perfection of Legal Title, which enables the perfector (the SPV) to become the full legal and Beneficial Owner rather than just the Beneficial Owner of the Receivables. The Issuer may be required to perfect Title if certain events outlined in the documentation occur (Title perfection events). When Assets are originally only beneficially assigned, that assignment is accompanied by authority (a Power of Attorney) to perfect or protect that equitable Interest in the case of a Title perfection event taking place.

Any form of property other than land or buildings and fixtures which form part of that land. It can include tangibles such cars, boats, machinery, crops; as well as intangibles such as shares, intellectual property and contract rights.

Where a new property can be used as Security for an existing Loan, i.e. when the Loan is transferred to a new Security property without needing to repay the Loan, reapply or restructure.

Power of Attorney

A written authorisation to another person, or persons, to perform certain acts for the signer, as if they were the signer.

PPSA

Personal Property Securities Act (2009). This is a federal government act, and PPS reforms took place to bring together the different Commonwealth, State and Territory laws and registers under one national system. The PPSA accompanies an online PPS Register.

Pre-funding occurs when some investor funds are set aside at the start of the transaction to enable the Issuer to gradually increase the value of Receivables underlying the Securitisation, within a specified period of time (called the Pre-funding period). The Pre-funding period is typically around 3 to 6 months, and enables the Originator to originate more Receivables and include then in the Securitisation vehicle, provided they are of similar characteristics to the existing pool. Pre-funding is also referred to as Ramp-up.

A fee assessed by a lender on an Obligor who repays all or part of the Principal of a Receivable before it is due. The prepayment penalty compensates the lender for the loss of Interest that would have been earned had the Receivable remained in effect for its full Term.

Prepayment Rate

The rate at which the Receivables in discrete pools are reported to have been repaid, expressed as a percentage of the remaining Principal balance of the pool. Different Receivables may demonstrate different prepayment behaviours, and different market conditions (e.g. Interest rates) may impact prepayment speeds.

A MortgageLoan which meets traditional lending criteria, whereby the underwriting process includes full income verification and the Obligor has a sound credit history. Historically, the “traditional lending criteria” in Australia is that which was required by the Lenders Mortgage Insurers, and hence a significant number of prime Loans in Australian Securitisations are Mortgage insured.

Also referred to as Commercial Paper or CP, it is a short-Term, unsecured Debt instrument with a fixed maturity where the Issuer promises to pay a determinate sum of money to the buyer, under specific terms. Since it is not backed by Collateral, only firms with strong Credit Ratings from a Credit Rating Agency will be able to sell a promissory note at a cost-effective price. A promissory note is usually sold at a Discount to Face Value, and carries higher Interest repayment rates than Bonds.

APRA Prudential Standards – these standards form part of the framework under which APRA supervises and regulates ADIs. One of the key standards that impacts Securitisation by ADIs is APS 120 (Securitisation).

Ramp-up

Ramp-up occurs when some investor funds are set aside at the start of the transaction to enable the Issuer to gradually increase the value of Receivables underlying the Securitisation, within a specified period of time (called the ramp-up period). The ramp-up period is typically around 3 to 6 months, and enables the Originator to originate more Receivables and include then in the Securitisation vehicle, provided they are of similar characteristics to the existing pool. Ramp-up is also referred to as Pre-funding.

Rapid Amortisation

A period that may follow the Revolving Period of a transaction, during which the outstanding balance of the related Debt Securities is repaid as quickly as possible from Collections received. If a performance trigger event occurs, rapid amortisation will be likely, to return Principal to investors as quickly as possible.

Real Estate

Land and all physical property on, below or attached to the land. Houses, sewers, trees and fences are all Real Estate.

Real Money Investors

Investors that are investing cash, rather than investing in order to trade or use the Debt Securities for some other purpose (e.g. arbitrage, liquidity management). Real Money Investors include superannuation funds, fund managers and insurance companies.

Recoveries include proceeds from the sale of the property or physical Asset underlying the RReceivable, as well as any other recoveries (e.g. LMI) received prior to the Receivable being written off.

Redemption

Redemption occurs when the Debt Securities can be redeemed (effectively bought back by the Issuer/Trustee) prior to the Legal Maturity Date. This may be at the option of one of the transaction parties (Call Option), or upon certain events being triggered.

Redraw

A feature of some variable rate MortgageLoans whereby you can make extra repayments, and then draw on these funds if required. The Redraw available to the Obligor is Scheduled Balance less Current Balance.

Refinance

To pay off a Debt and arrange for a new Debt, sometimes with a different lender.

Reg AB Issue

An ABS issue registered in the US with the Securities Exchange Commission. Regulation AB is a set of rules and amendments that address the registration, disclosure and reporting requirements for ABS. Investors in Reg AB issues are domiciled in many jurisdictions, including the US.

Reg S Issue

Debt Securities offered to European and Asian investors (and US off-shore investors). These issues are settled through Euroclear or Clearstream and listed on a European exchange. They are usually denominated in USD or Euros.

A funded account available for use by an SPV for one or more specified purposes. A reserve account is often used as a form of Credit Enhancement or Liquidity Enhancement. Usually reserve accounts are at least partially funded at the start of the related transactions, but many are designed to be built up over time using the excess cash flow that is available after making payments to Secured Creditors.

The unitholder is entitled to any cash flow from the Assets that remains after the obligations to all other Secured Creditors have been met.

Residual Value

The estimated value of Personal Property at the end of a Lease period. Lease payments are based on the difference between the property’s sale price and residual value. If the property is not worth the estimated residual value at the end of the Lease, then the Obligor may have to make up the price difference by making a residual payment. This concept generally relates to Leases over vehicles or equipment.

Principal receipts from the underlying Receivables are used to reinvest in additional Receivables rather than passing through to investors. This is usually used to finance short-dated RReceivables such as trade receivables. The ‘Revolving Period’ is at the start of the transaction. The ‘amortisation period’ can commence on a predetermined date, or may start early if certain performance provisions are triggered.

A Mortgage Loan granted when there is already one other Mortgage registered against the property. In case of Default, the first Mortgage is paid from the proceeds of the sale of the property, before the second Mortgage is paid.

A creditor with the benefit of a Security Interest over some or all of the Assets of the SPV. If an Event of Default occurs, the Secured Creditor can enforce Security against the Assets of the SSPV. In a Securitisation, Secured Creditors generally include investors, hedge providers, liquidity providers, etc.

A written promise to pay a stipulated sum of money to a specified party under conditions mutually agreed upon and secured by Collateral. Throughout this glossary, Bonds, notes, and any other forms of securitised Debt issuance, are referred to as Debt Securities.
The term Security also relates to the property that will be pledged as Collateral for a MortgageLoan.

Security Trust Deed

Under this deed, the SPV grants a Charge in favour of the Security Trustee for the benefit of the investors and facility providers, and sets out the Waterfall in the event of a Default by the SPV.

A registration of a new issue which can be prepared several years in advance, so that the issue can be offered quickly as soon as funds are needed or market conditions are favourable. A single registration document can be filed by a company that permits the issuance of multiple Debt Securities.

A state government tax imposed on legal documents and commercial transactions. For the purchase of Real Estate, it is calculated according to the property value. It also applies to the amount of the Mortgage.

A pool of Receivables made up of Receivables originated only during a finite period of time, usually a month or a quarter. Analysing Receivables pools in static pools provides additional insights into how a securitised pool may perform over time, for instance its repayment profile and Loss Curve.

Step-down

Principal Collections can be passed through to more subordinated Classes of Debt Securities (even if senior Debt Securities have not been repaid in full), provided certain “step-down triggers” are being met. Such step-down triggers often include the passing of a period of time, and the maintenance of Arrears below certain levels.

A Receivable which fails to meet traditional lending criteria, e.g. the Obligor has a poor credit history. Historically, the “traditional lending criteria” in Australia relating to MortgageLoans is that which was required by the Lenders Mortgage Insurers. The rate charged on a sub-prime Receivable is higher than the prime or standard rate. Sub-prime Receivables are also sometimes referred to as specialist or Non-conforming.

Substitution Period

If an underlying Receivable is sold out of the pool because it doesn’t meet eligibility criteria, funds are used to reinvest in additional Receivables rather than passing through to investors. This is usually used to finance long-dated Receivables such as MortgageLoans for up to 2 years at the start of the transaction (the “substitution” period).

An agreement by two parties used to limit market risk by exchanging sets of payments that are each based on a different risk basis, e.g. a fixed/floating Interest rate swap requires one party to pay fixed Interest rate payments and receive floating/variable Interest rate payments.

Talon

A certificate attached to a Bond used by the investor to order new Coupons upon depletion.

An issue of Debt Securities to the capital markets whereby the Debt Securities have a specified maturity date and the pool is effectively a closed pool, i.e. further Assets cannot be added to the pool over time (this has some exceptions, e.g. term issues with Substitution or Ramp-up periods). A term issue may follow the build-up of Receivables on balance sheet, or in a Warehouse Facility.

A legal document evidencing a person’s right to or ownership of a property.

Title Insurance

The insurance that protects the Mortgage company, along with the homeowner, if an owner’s policy is purchased against losses resulting from problems with the Title of a property, or unknown liens (Charges) or other inconsistencies relating to the Title of the property.

Title Perfection

Refers to the perfection of Legal Title, which enables the perfector (the SPV) to become the full legal and beneficial owner rather than just the beneficial owner of the Receivables. The Issuer may be required to perfect Title if certain events outlined in the documentation occur (Title perfection events). When Assets are originally only beneficially assigned, that assignment is accompanied by authority (a Power of Attorney) to perfect or protect that equitable interest in the case of a Title perfection event taking place.

Title Search

A check of public records to be sure that the Seller is the recognised owner of the Real Estate and that there are no unsettled liens or other claims against the property.

System whereby ownership and all dealings on a property are detailed on the one document, i.e. a Certificate of Title or Deed of Grant. Under this system a Mortgage is a Charge or encumbrance on the Title. Registration is compulsory to effect legal transfer of an Interest in property and each time the property is sold, Mortgaged or a Mortgage discharged, the transaction is recorded on the Certificate of Title.

One of a series of Debt Securities secured by a single pool of Receivables. The tranches have different terms and conditions and rank in different orders in the payment Waterfall, leading to each tranche having varying levels of Credit Risk. Different tranches can be denominated in different currencies and have differing maturity dates. Also referred to as a Class.

Trigger Event

The occurrence of an event which indicates that the financial condition of the Issuer or some other party associated with the transaction is deteriorating; typically, such events are defined in the transaction documents, as are the changes to the transaction structure and/or priority of payments that are mandated following the occurrence of such an event.

The process of analysing a Receivable application to determine the amount of risk involved in writing the Receivable contract; it includes a review of the potential Obligor’s credit history and a judgment of the property or other physical Asset values.

Valuation

An estimate of the market value of a piece of Real Estate made by a competent professional (the valuer) who knows local property market and prices. Also known as an ‘appraisal’.

Valuer

Also known as an ‘appraiser’, an individual qualified by education, training and experience to estimate the value of real property and personal property. Although some valuers work directly for Mortgage lenders, most are independent.

Refers to a portfolio of Receivables originated within a specified time period (usually refers to a calendar year, e.g. the 2006 vintage).

WAL

Weighted Average Life – the average remaining Term to maturity of the underlying Receivables, weighted by remaining Principal balance. Also called WAM.

WAM

Weighted Average Maturity - the average remaining Term to maturity of the Receivables, weighted by remaining Principal balance. Also called WAL.

Warehouse Facility

An issue of Debt Securities, to a warehouse funder (typically a bank), under a warehouse facility structure, whereby the Originator has the ability to continue to add Receivables into the pool, to build the volume up to a size at which they can “term out” (i.e. do a Term Issue). The warehouse facility is subject to a number of conditions, including Eligibility Criteria around what type of Receivables can be funded by the Warehouse. The warehouse facility is usually for a Term of 1 year, at which point it may be rolled over for another year as required.

The average Interest rate for a group of Debt SecuritiesDebt Securities>Debt Security in the group by a fraction, the numerator of which is the outstanding Principal balance of the related Debt Security and the denominator of which is the outstanding Principal balance of the entire group of Debt Securities. An important concept in tranched Securitisation structures is that the weighted average cost of funds tends to increase over time, as the cheaper senior Debt Securities retire, leaving the more expensive subordinated Debt Securities outstanding.

The opposite of excess spread. Indicates that insufficient spread is available from the Assets to pay the SPV’s costs and the Interest portion of Debt service in full. A potential yield shortfall may be mitigated by the SPV having access to cash collateral in a Reserve Account. Cash flow analysis helps to identify potential yield shortfalls under various scenarios. This may be a particular risk in Pass-through structures, as the cheaper senior Debt is repaid, leaving the more expensive subordinated Debt outstanding.